Erstwhile mechanical engineer and Forbes Executive Editor, with MBA from NYU. In 15 years at Forbes I covered large corporations, money managers and self-made wealth builders---and the myriad trials they all face. Joined the tech-startup ranks in 2014 as co-founder and CFO of Eyes/Only, a luxury-experience portal for high-net-worth individuals. If the mood strikes (and especially if you have a tasty-tequila rec), please send your thoughts to brett@eyeson.ly.

Financial Illiteracy Is Killing Us

As Ben Bernanke and the Federal Reserve dither over what to do about the darkening economy, I’m reminded of, and damn near demoralized by, a scene in “I.O.U.S.A.”, the remarkable and terrifying 2009 documentary about the burgeoning debt crisis in America.

In the scene, a cameraman asks a smattering of people to define “trade deficit.” Here was one of the better answers, delivered by a fresh-faced woman who looked roughly 18 years old: “Deficit usually means…disorder or something. Something is wrong with it. It’s not good.”

Ok, maybe the notion of importing more stuff than we export is a tad abstract. How about the notion of debt? Cameraman to passersby: “How big is the federal debt?” Some responses: “I’m guessing quite a bit”; “3 million”; “I know it’s in the billions.” Try $8.7 trillion. (The film was made in 2009–after bailouts, stimulus packages and healthcare reform, that number is now a few trillion higher, and will soon surpass the $14.5 trillion worth of goods and services this country produces annually.)

The point of “I.O.U.S.A.”—sponsored in part by the Peter G. Peterson Foundation (Mr. Peterson is a billionaire investor and former U.S. Secretary of Commerce)—is to scare us stiff about the consequences of mass fiscal irresponsibility. It succeeds. But it also drives at something deeper: our rotting education system that ultimately led to this problem.

That teenagers are allowed to drive, vote and parent, all while not knowing the difference between an asset and a liability, is nothing short of a travesty. Yet that’s what we have–and we are all paying for it.

I’m thinking now about the $1.3 trillion in delinquent consumer debt–$986 billion of it overdue by at least 90 days. One. Point. Three. Trillion. I’m also thinking about the wide-eyed throngs who signed up for no-doc mortgages they could never in their wildest dreams afford. And then there was the obvious mental mismatch between members of Congress and the Hank Paulsons, Ben Bernankes, Lloyd Blankfeins and their pin-striped ilk that led to a “financial reform” bill with so many holes that two institutions–Fannie Mae and Freddie Mac, which now own or guarantee half the entire mortgage market–fell right through. (Does anyone truly believe that was a fair fight?)

Here’s who should be thinking about all of this: the folks who run our schools. If the U.S. aims to compete–for anything–on a global scale, its populace has to be financially literate. And it isn’t. Not even close.

Consider the atrocious findings in a 2008 report by the Jump$tart Coalition for Personal Financial Literacy (underwritten, ironically enough, by Merrill Lynch). Begun in the 1997-1998 school year, the nationwide biennial survey of 12th graders aimed to determine “the ability of our young people to survive in today’s complex economy.” The 31-question exam touched on topics ranging from credit cards and car insurance to the stock market and home ownership. The results were bad, and are getting worse.

The average grade on the first exam was 57.3%. (You need a score of 60% to pass.) In 2008, it had dipped to 48.3%, with nearly three quarters of the 6,856 students failing. Fewer than 5 out of every 100 earned a “C” (75% or better). While college seniors scored higher on the same exam in 2008, averaging 64.8%, the Jump$tart report points out: “The good news is that most college graduates are financially literate. The bad news is that only 28% of Americans graduate from college, leaving nearly three quarters ill-equipped to make critical financial decisions.”

Here are some more arresting numbers, compiled by the folks at Practicalmoneyskills.com, sponsored by Visa.

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Wonderful article! A couple of years ago I got very disturbed about the same thing because I was seeing my 5 kids grow up wanting to spend all they had all the time. Last year I took a risk and started a business to do something about it. FamilyMint.com provides an online money management application for kids where parents act as the bank. Kids learn by actually managing their own money in a safe, online environment while they set and work to achieve their financial goals. We kept it simple and targeted kids 6-16 so they have a better chance of walking into high school with the fundamentals already taken care of. In fact, www.FamilyMint.com can help parents with all 4 of the “best weapon” bullets in your article above. Thanks so much for highlighting these issues and opportunities!

Wow, those are some amazing statistics. If personal financial literacy is this bad how many small business owners are financially illiterate? You need a license to catch a fish but they’ll let anybody make financial commitments, borrow and spend money, etc.

Right at the top is jargon-nonsense: “Quality advice”. If I don’t want to buy low quality sneakers, should I buy quality sneaker? Next we should start saying “cost” instead of “high cost” or a “resolution” display instead of “high resolution”.